More changes needed to VAT law
By Severus Smuts, Director, Deloitte
Deloitte Budget 2012 Expectations
Johannesburg, 25 January 2012 - The VAT system was implemented in 1991, almost 20 years ago, when the sophistication of financial transactions was not what it is today. One also tends to forget that 20 years ago a fax was essentially the only means of electronic communication. The VAT legislation was drafted in an era when the terms “e-mail” and “e-commerce” had no meaning to the legislature. Electronic media just did not exist. Times have changed and transactions have evolved at a rapid rate.
It is often said that the ‘tax invoice’ under pins the VAT system simply because it communicates how and the extent that VAT has been charged on the transaction. In the current environment it is common practise for VAT vendors to issue tax invoices, debit and credit notes, statements and other documents via email or other electronic means. We believe that the VAT legislation should contain the rules that must be complied with in order to practice electronic invoicing.
From the introduction of the VAT system there had been various attempts to ensure that financial transactions other than fee-based financial services and short term insurance remain exempt from VAT. This has not always been an easy task due to the sophistication of financial transactions and the industry finding new ways to transact with one another. Examples are various types of options, credit default cover, guarantees and debt securities.
There are other VAT exemptions provided for in the VAT Act which over the years caused interpretational issues.
These include the following:
- The supply of educational services is exempt from VAT. However, the term “education services” is not defined for VAT purposes. It is therefore difficult to determine whether or not the various types of income received by approved educational institutions attract VAT.
- Whether the exempt supply of commercial accommodation to employees also extends to non-employees.
- The supply by a body corporate to its members in respect of a sectional title, share block or housing development scheme, is exempt. The question is whether this exemption should also apply to other housing developments such as residential estates.
There are also a number of zero rating provisions that did not keep track with the way the way persons transact with one another. Examples include the services by travel agents where the underlying services are consumed outside South Africa and the supply of services to non-residents
We strongly believe the time has come to review certain provisions of the VAT Act to ensure that they are still in line with the intention of the legislature and achieve the required result. We would like to see these reforms being addressed in the Minister’s Budget Tax Proposals to be delivered on 22 February this year.
Magna Carta (PR)
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Deloitte & Touche
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